The UK government expects the unemployment rate may reach 7.5%, which would mean that 2.6 million people could lose their job amid a potential no-deal exit from the European Union’s single market and a spike in coronavirus cases.
Gov't Measures Have Failed to Halt Jobless Spike
"The UK has already seen 819,000 redundancies, very much focused in the hospitality sector and retail - and more broadly services - and even with the furlough scheme being extended, this number could quite easily double, especially if lockdown measures extend until February," says Marc Ostwald, global strategist and chief economist at UK-based ADM Investor Services International.
To stay afloat, companies continue to borrow to cover lost revenues because of the pandemic and resort either to major restructuring, including cost cutting and redundancies, or insolvency beckons, he explains. Although the Government is trying to save businesses, there is criticism mounting against Chancellor of the Exchequer Rishi Sunak. According to Bloomberg, Sunak is being accused of acting too late when he expanded programmes to protect jobs and businesses hit by the coronavirus-related lockdowns.
"We have lost over 650,000 jobs and still have around 1 million staff members on furlough", says Kate Nicholls, CEO of UKHospitality, the country's leading hospitality trade association. "We desperately need continued support from the Government and a clear and viable roadmap for businesses out of restrictions. If we want to have any hope of seeing businesses trade their way out of danger and spearhead the economic recovery next year, we need support. An extension of the VAT cut for hospitality and business rates holiday will be crucial".
The UK Government introduced a series of measures aimed at offsetting the loss of income to workers and the self-employed situation, observes Marc Cowling, professor of business economics at the University of Derby, referring to a Coronavirus Job Retention Scheme (CJRS), which "has been extensively taken up by employers to cushion the economic shock".
The Government has also introduced the Self-Employment Income Support Scheme "which awarded grants of 70 percent of average monthly trading profits calculated from tax returns for 2018 and 2019," he notes, adding that this scheme only applied to those self-employed who earned less than £50,000 in profit for the relevant period.
Unfortunately, these schemes have not prevented the spike in unemployment with almost 3 million people claiming the British primary welfare scheme "Universal Credit" since 1 March, according to the academic.
Meanwhile, the Office for Budget Responsibility (OBR), which oversees government spending, projected in late November that borrowing could reach £394 billion from April 2020 to April 2021 which is the highest figure outside wartime.
"Much as the UK government has borrowed heavily to cushion the blow of the pandemic, there is an air of austerity about Chancellor Sunak, which suggests that present fiscal largesse will likely be withdrawn at the first opportunity, which will be too soon, and which bodes poorly given the unique challenge of Brexit combining with the pandemic," says Ostwald.
How Could Brexit Affect the Economic Slowdown
As the end of the post-Brexit transition period nears, the UK and the European economic bloc have yet to strike a mutual trade agreement, prompting fears of a no-deal withdrawal.
"Brexit – at the time of writing, it would appear that a deal is close, but the scope is narrow, and does not cover the key services sector, and there will be disruption to financial services, as widely acknowledged," Ostwald says, adding that a no-deal scenario is fraught with far more economic risks.
Cowling shares Ostwald's concerns that Brexit could deal a severe blow to the UK's economy already crumbling under the burden of spiraling recession and unemployment rates. He argues that the UK infrastructure is "not ready to move to a hard border-style trading arrangement with holding transport parks not being fully operational" if a no-deal scenario materialises.
"My own estimates for UK businesses which trade within the European Single Market area are that even a very modest tariff (say 10% on average) would be detrimental to around 41,000 UK SMEs and would cost them around £5 billion per annum in lost sales as they become uncompetitive on price", he suggests.
Brexit will compound the contraction by having an adverse effect on economic growth in 2021, impeding any prospect of recovery, believes Christopher Bovis, professor of international business law at the University of Hull. While the retail and hospitality sectors have been devastated by COVID and the government containment policy, Brexit may additionally hit the manufacturing sector with textiles, chemicals and electrical goods potentially contracting their outputs as much as 10% on pre-pandemic levels, he says.
"Of course, a comprehensive agreement covering future trade relations of the UK with the EU will mitigate such disruption," Bovis says. "Nevertheless, the UK economy will not reach pre-Covid levels until 2023 at the earliest."
COVID Vaccine: A Silver Lining to The Cloud of Crisis
"With the latest ONS labour market statistics showing a rise in unemployment coinciding with the original end date of the furlough scheme, it’s clear to see what challenges the coronavirus pandemic poses for jobs across the UK," admits James Reed, chairman of REED, Britain’s biggest recruitment firm.
Nevertheless, the situation is not as dire as it seems, especially given that pharma firms have at long last provided world governments with the access to vaccines, according to him.
"Having said many times over that the furlough scheme would end in October, the Chancellor’s decision to extend it has helped to keep many in employment and kept the ONS’s latest unemployment figures relatively low considering", he highlights.
In addition to this, while "the jobs market has been through one of its most turbulent periods in recent history," the economy "has shown great flexibility, dynamism and entrepreneurialism" regardless of the combination of challenges, which "have helped improve the economic outlook as we progress into 2021," argues Reed.
"I’m optimistic that we are moving towards a much better situation for jobs and, with the vaccine now being rolled out, we are a few months away from the economy fully opening up and a thriving jobs market once again," the recruitment firm chairman says.
To illustrate his point, he cites REED’s own jobs data from November, showing "the highest number of new jobs added to reed.co.uk since back in February".
"Every region from the UK - apart from Scotland - is seeing month-on-month increases despite the nationwide lockdown," he stresses.
Meanwhile, UK and EU negotiators have recently extended the "marathon Brexit talks" and decided "not to pull the plug from Brexit negotiations on Sunday," according to The Wall Street Journal. On Tuesday, the British Government announced that it had managed to reach a compromise over fishing vessels to be majority British-owned in future and dropped its push for renationalising of watercraft. Earlier, Euronews reported - citing EU's chief negotiator Michel Barnier - that a post-Brexit trade agreement is still possible.
